China’s Zijin to buy Nevsun for $1.41bn after Lundin takeover rejected

Canada’s Nevsun Resources (TSX, NYSEMKT:NSU) has found a new suitor in China’s state-backed Zijin Mining, which has offered Cdn$1.86 billion ($1.41 billion) for the gold and copper miner.

Zijin’s friendly takeover bid values each Nevsun share at Cdn$6, which will be paid in cash, representing a premium of about 21% to the Vancouver-based miner’s close in Toronto on Tuesday.

Zijin’s friendly takeover bid values each Nevsun share at Cdn$6, which will be paid in cash, representing a premium of about 21% to the miner’s close in Toronto on Tuesday

The deal, which beats an earlier hostile bid by Lundin Mining (TSX:LUN), is the latest move by Zijin to expand overseas. In recent years, the gold, copper and zinc miner has snatched assets from Africa to Australia. Last week, the company spent $1.26bn for a 63% in Serbia’s largest copper mining and smelting complex RTB Bor.

Nevsun’s flagship asset is the Bisha copper-zinc mine in Eritrea, but it’s also developing the Timok copper and gold project in Serbia.

“The all-cash consideration of C$6 per share better reflects the fundamental value of Nevsun’s mining and development assets, while also providing an appropriate change of control premium to our shareholders,” Ian Pearce, Nevsun’s chairman, said in the statement. “Zijin is a proven mining industry operator with a $10bn market capitalization and a demonstrated track record of successfully completing international transactions.”

Nevsun had repeatedly said the Lundin offer undervalued the company and that other parties had expressed an interest in buying the company. Today’s deal proves it true.

Failed attempts

Lundin first approached Nevsun on February 7, submitting a new proposal on February 25 and yet another on April 3, all of which were rejected. In May, Lundin partnered with Euro Sun Mining a roughly $1.5-billion takeover offer that was a combination of cash as well as shares in both Lundin and Euro Sun. That bid was also rejected, so the company turned its offer into a hostile one, making a new $4.75 per share all-cash offer directly to Nevsun shareholders.

The fight for Nevsun highlights how miners are scrambling to acquire copper reserves amid forecasts that supply of the metal significantly outstrip supply from 2020, due to increasing demand for power generation and electric vehicles (there’s 300kg of copper in an electric bus and nine tonnes per windfarm megawatt).

After rejecting Lundin’s offer, Nevsun said it had entered into confidentiality agreements with 18 interested parties, and had received four proposals from mining and smelting companies

Nevsun’s Timok copper-gold project is one of the very few that aren’t already controlled by a big miner. It's also one of a handful of projects expected to come online in the near future. According to Colin Hamilton, director of commodities research at BMO Capital Markets, the current copper pipeline is the lowest seen this century, both in terms of number and capacity.

“After delivery of Cobre Panama (with the main ramp early next year) we are left with a gap until we see the next batch of 200ktpa-plus projects in 2022-23. This is when the likes of Kamoa, Oyu Tolgoi Phase 2, and QB2 are likely to offer meaningful supply growth,” Hamilton said in April.

Prices for copper, however, have dropped almost 20% in London so far this year due to a combination of factors, including a strengthening dollar, mounting trade disputes and emerging market turmoil.

Zijin’s offer is subject to a minimum tender requirement of two-thirds of Nevsun’s shares, according to the statement. It also has also to be approved by the Canada under the Investment Canada Act and the Canadian Competition Act.

The Chinese miner will have to pay a termination fee of $50 million to Nevsun in certain circumstances, including failure to receive approval from Chinese authorities, the parties said.

Zijin will be eligible for a termination payment of $50 million if Nevsun accepts a superior offer.

China’s Zijin to buy Nevsun for $1.41bn after Lundin takeover rejected

The Timok copper and gold project in Serbia. (Image courtesy of Nevsun.)